Tax Cut Policy, Business Environment and Enterprises High-quality Development: evidence from China

. Under the background of high-quality development, the support of ﬁscal policy is important for enterprises to achieve high-quality development. As a major initiative to promote the supply-side reform in China, can tax cut policy promote the high-quality development of enterprises? In order to explore this question, based on the data of China’s listed companies from 2015-2019, this paper ﬁnds that: (i) Tax cut policy can improve the total factor productivity of enterprises and empower their high-quality development. (ii) The impact is di ﬀ erent for companies in di ﬀ erent regions and ﬁrms with di ﬀ erent nature of property rights. Tax cut policy can better promote the high-quality development for companies in central regions and state-owned enterprises in China. (iii) The optimization of business environment e ﬀ ectively strengthens the positive e ﬀ ect of tax cut policy on the enterprise high-quality development. The e ﬀ ect of tax cut policy on total factor productivity is more obvious for companies in better business environment


Introduction
The global COVID-19 pandemic has made a huge impact on the world economy, and different countries are facing unprecedented opportunities and challenges (Rasul et al, 2021) [1]. As China embarks upon a new era of high-quality development, the Chinese government has emphasized the macro-control policy of driving high-quality development and accelerating the reform of quality, efficiency, and dynamics (Jin, 2018) [2]. In the stage of high-quality economic development, the problems faced by China lie on the supply side. The main directions of high-quality economic development and supply-side structural reform are consistent. At the same time, Chinese tax cut policy aims to directly reduce the cost of enterprises while the goal of the supply-side reform in China is also cost reduction (Guo, 2021) [3]. Therefore, the tax cut policy can make impact on the high-quality economic development. The implementation of tax cut policy needs microeconomic subjects by evoking their innovation and vitality (Yin, et al, 2022) [4]. As the micro subject of the market economy, enterprises play a vital role in the process of creating and circulating social wealth. The stable and healthy development is the basis for enterprises to play a social role, and it is also the goal for enterprises in the process of production and operation (Chi, Deng and Mou, 2010) [5]. Enterprises can improve vitality under tax cut policy. Hence, tax cut policy plays an irreplaceable role in promoting supply-side reform and achieving high-quality development.
At the same time, creating a stable, fair and predictable business environment is also a systematic project in China (Li et al, 2021) [6]. It involves the construction of China's modern economic system, promotion of high-quality economic development, transformation of development dynamics and development of openness to the world. A good business environment not only promotes the development of innovative activities of enterprises, but also facilitates the implementation of tax cut policy (Thai and Turkina, 2014) [7]. Due to the differences of politics, economy, and culture in different regions in China, the business environment is also different. Hence, what is the impact of tax cut policy on the high-quality development of enterprises? Does the difference in business environment cause different effects of tax cut policy on the high-quality development of enterprises?
For the literature on tax cut policy, scholars focus more on the economic consequences of tax cut policy at macro level and micro level. In the macro perspective, Adkisson and Mohammed (2014) [8] demonstrate that lower personal and sales tax can boost economic growth. However, Gechert and Heimberger (2022) reach opposite conclusion: no matter corporate tax cuts increase or decrease, it will not significantly affect the economic growth [9]. At the micro level, the effect of tax cut policy refers to direct effect and indirect effect on enterprise development. Moll (2014) finds that tax relief can directly and effectively reduce the burden of enterprises and relieve financial pressure [10]. For the indirect effects, it includes increasing after-tax profit, stimulating investment and increasing the patent output level and innovative activities (Manpreet and Zaldokas, 2017) (Atanassov and Liu, 2020) [11,12]. Thus, companies can empower business market expansion and technological innovation (Zwick and Mahon, 2017) [13].
Similarly, researches on the business environment can be divided into macro and micro levels. At the macro level, scholars' studies have shown that a good business environment has a positive effect on economic development (Haidar, 2012) (Djankov, McLiesh and Ramalho, 2006) [14,15]. In the micro perspective, many scholars focus on the relationship between the business environment and corporate business performance. Dollar et al (2005) verify the impact of investment environment on firm performance in terms of communication and power supply in different regions [16]. Prajogo (2016) discusses the impact of dynamic and competitive characteristics of business environment on enterprise performance under different types of innovation strategies [17]. Additionally, there are some studies on the impact of business environment on economic growth. Most researches show that there is a positive relationship between business environment and total factor productivity of enterprises (Seker and Saliola ,2018) (Bah and Fang ,2015) [18,19]. In conclusion, there is less direct micro evidence on the relationship between tax cut policy and high-quality development of enterprises, and even less literature considers the important factor of business environment into the relationship between tax cut policy and high-quality development of enterprises.
Based on the data of China's listed companies from 2015-2019, this paper uses fixedeffects model to explore the effect of tax cut policy on the high-quality development of enterprises and whether differences in the business environment cause different effects of tax cut policy on the high-quality development of enterprises. Under the background of economic downturn, epidemic impact, large-scale tax cut policy and the increase of fiscal expenditure, it is of great theoretical and practical significance to discuss the effect of tax cut policy on the high-quality development of enterprises. This can be helpful for enterprises tax planning and better stimulate the innovation ability of enterprises. And it can be used as a basis for decision making of government departments and provides substantial evidence for later policy revision. At the same time, it also has direct guiding significance to the policy formulation of optimizing business environment. Besides, it provides direct empirical evidence for the effectiveness of tax cut policy to enable high-quality development of enterprises.

Tax cut policy and High-quality Development of Enterprises
Tax cut policy is an important measurement to stimulate total output and achieve high-quality macroeconomic development in China. Tax cut policy helps enterprises develop by improving corporates' efficiency, reducing costs, and optimizing revenue (Yang and Shen, 2021) [20]. On the one hand, China's tax policy has improved the VAT chain. By changing business tax to VAT, this policy reduces double taxation, lowers the tax burden on enterprises, stimulates enterprise investment, promotes industrial structure optimization and upgrading, and improves the efficiency of enterprise operation (Wang and Su, 2019) [21]. At the same time, it can increase corporate cash flow, ease internal financing constraints by increasing corporate net profit, and facilitate corporate R&D and innovation activities. On the other hand, the tax cut policy represented by the pension reform has effectively alleviated the problem due to the high percentage of basic pension insurance contributions in China. It imposed a large burden on enterprises. Reducing the nominal social insurance contribution rate can increase the degree of corporate innovation by lowering the per capita labor cost. In this way, it can promote high-quality corporate development (Zeng and Yang, 2021) [22]. Hence, we provide hypothesis1. Hypothesis 1. Tax cut policy can promote enterprises high-quality development.

Moderation Effect of Business Environment on the Relationship between Tax Cut policy and High-quality Enterprise Development
Business environment reflects the soft power of a region's economy. Because of different natural resources, economic base and policy system, different regions have different business environment conditions. A better business environment provides guarantees for stable economic operation, business continuity and sustainable policy implementation. Therefore, the impact of tax cut policy on the high-quality development of enterprises varies under different business environments. On the one hand, in a fairer and more stable business environment, government intervention will be gradually reduced, and tax cut policy implemented by enterprises will be more transparent and predictable (Song and Yang, 2021) [23]. Therefore, a better business environment can improve the efficiency of tax cut policy, guarantee the realization of tax policy objectives, and shape a fairer market competition environment for enterprises. A more flexible business environment can improve the rationality of resource allocation and stimulate the profitability of enterprises (Claessens, Ueda and Yafeh, 2014) [24]. Hence, under a favorable business environment, enterprises are more willing to use the increased cash flow due to tax cut policy in investment activities to improve their competitiveness. In this way, companies can achieve high-quality corporate development. On the other hand, according to signaling theory and the study of Li, Wang and Hao (2016) [25], firms can convey exact positive information about the value and quality of goods through observable behaviors, which include corporate R&D inputs and financial subsidy signals. It mitigates information asymmetry to some extent. When there is high market information liquidity, high level of financial development or a more complete investor protection system, the degree of information asymmetry can be reduced. Hence, when the signal of tax incentives is strengthened, the external financing constraints of enterprises are reduced and more funds are available for their investment activities. In this way, corporates' investment capacity will be increased accordingly (Rocha, 2014) [26], thus promoting the high-quality development of enterprises. Therefore, we provide hypothesis2. Hypothesis 2. Business environment positively effects the relationship between tax cut policy and high-quality enterprise development.

Data and Sample
This paper selects A-share listed companies in Shanghai and Shenzhen stock exchanges from 2015-2019 as the research objects. The data are all sourced from CSMAR database. In order to ensure the reliability of the sample, we exclude the data of financial sector according to the industry classification of CSRC (China Securities Regulatory Commission) in 2012, the data of PT, ST and ST* listed companies, the data of companies that have been delisted, the data of listed companies whose AB shares are issued at the same time, and the samples with missing data. Finally, 12,648 valid observations are obtained after winsorizing by 1% up and down.
(1) Total Factor Productivity. Total factor productivity is a proxy variable for measuring the quality and structure of China's economic development. Most scholars choose to use total factor productivity as an indicator in measuring the high-quality development of enterprises. Total factor productivity is currently measured by the OP method and LP method (Olley and Pakes, 1996) (Levinsohn and Petrin, 2003) [27,28]. The LP method is improved compared to the OP method by using intermediate goods input indicators as proxy variables, thus increasing the flexibility of proxy variable selection. Therefore, this paper adopts the LP method to measure the total factor productivity of the explained variable. The regression equation is as follows, and the specific variables are described in table 1.
(2) Comprehensive Tax Rate. Since changes in a single tax often cause changes in the quantity of other taxes, in order to better measure the benefits of tax cut policy to enterprises, this paper refers to Yang and Shen (2021) [20]. We choose the comprehensive corporate tax rate from 2015-2019 as the explanatory variable to verify the effect of tax cut policy on the high-quality development of enterprises.
(3) Business Environment. The World Bank's evaluation index system on the business environment is not suitable for the current situation of Chinese cities. Hence, using the World Bank's 2012 survey data on Chinese enterprises to measure the business environment is not  [29].
(4) Control Variables. Considering the influences of other factors on the high-quality development of enterprises, the following indicators are selected as control variables in this paper: firm size (Size), gearing ratio (Lev), enterprise value (TobinQ), corporate age (Age), profitability (ROE), cashflow ratio (Cashflow), operating income growth (Growth), regional economic development (GDP), agency costs (Agency), and capital intensity (Intensity). The variables are defined as shown in table 2.

Model Design
To test hypothesis 1, model 1 is constructed with total factor productivity as the explained variable and comprehensive tax rate as the explanatory variable.
Under control time fixed effects, LnT FP e,t is the total factor productivity of e company in year t, T ax e,t is the comprehensive tax rate of firm e in year t, Controls are control variables, and ε is the residual.
For the test of the moderation effect of hypothesis 2, the interaction term generated by comprehensive tax rate and business environment is introduced into model 1 to generate model 2.
LnT FP e,t = α + β 1 T ax e,t + β 2 MAR e,t + β 3 T ax − MAR e,t + β 4 controls + T E + ε. (2) LnT FP e,t is the total factor productivity of e company in year t, T ax e,t is the comprehensive tax rate of firm e in year t, MAR e,t is the marketability index of firm e in year t, and T ax_MAR e,t is the interaction term between the comprehensive tax burden rate and the regional business environment index, Controls are control variables, and ε is the residual.  Table 3 reports the results of descriptive statistics obtained for the variables. The average of total factor productivity after taking the logarithm (Lntfp) is 9.170, the maximum value is 12.14 and the minimum value is 6.934 and the standard deviation is 1.724, which show large differences between the total factor productivity of different enterprises. The average of comprehensive tax rate (Tax) is 0.068, the maximum value is 0.338, the minimum value is -0.0062, and the standard deviation is 0.066, indicating that the comprehensive tax rate of sample enterprises also has relatively significant differences. The average of business environment (MAR) is 8.799, the maximum value is 10.960, and the minimum value is 4.100, indicating that the business environment in different regions varies greatly and the development of different regions is relatively unbalanced. The average of enterprise size (size) is 13.09, the minimum value is 10.84, the maximum value is 17.06, and the standard deviation is 1.271, which indicates that there is a large difference in size among the sample enterprises. Other than that, the results of the remaining control variables basically comply with the real situation of enterprises.

Results of Multiple Regression Analysis
Firstly, from the regression model with total factor productivity (Lntfp) as the explained variable and comprehensive tax rate (Tax) as the explanatory variable, the estimated coefficient of the (Tax) is -0.178 and is significant at the 1% level. It indicates that the decrease in comprehensive tax rate significantly promotes the improvement of total factor productivity. Hence, tax cut policy has a positive and significant impact on the total factor productivity of enterprises, which in turn promotes high-quality development of enterprises. The results are consistent with the hypothesis, and hypothesis 1 is confirmed. In order to avoid the multicollinearity problem brought by the interaction term, the interaction terms of business environment (MAR) and tax rate (Tax) are centered in this paper. The results show that the coefficient of Tax_MAR and the total factor productivity (LnTFP) is 0.073 with a t-value of 0.023, which is significant at the 1% level. It indicates that the business environment weakens the negative impact of the comprehensive tax rate on the total factor productivity of The numbers in parentheses are t-values: ***, **, and * represent significant at 1%,5%, and 10% levels respectively enterprises. Therefore, the tax cut policy can better promote the high-quality development of enterprises under a better business environment, the business environment brings a positive moderation effect in the main relationship, hypothesis 2 is proved.

Robustness tests
(1)Shortened time window method In order to improve the reliability of the empirical analysis of the impact of the tax cut policy on the high-quality development of enterprises and the moderating role played by the business environment in it, this paper adopts the shortened time window method to conduct robustness tests on the regression results. Since China announced significant tax cut policy in 2016 and fully implemented VAT in all industries across the country, the business tax began to be gradually replaced. Hence, 2016 is an important point since the implementation of The numbers in parentheses are t-values: ***, **, and * represent significant at 1%,5%, and 10% levels respectively the tax cut policy. This paper shortens the time interval of the sample and selects three-year data from 2017-2019 for the robustness test. As shown in table 5, the results show that the estimated coefficient of the comprehensive tax rate (Tax) and total factor productivity (Lntfp) is -0.171, which is significant at the 1% level. The coefficient of the interaction (Tax_MAR) and total factor productivity of enterprises (Lntfp) is 0.125, which is significant at the 1% level. Consistent with the previous results, the reliability of the regression results in this paper is verified.
(2)Replacement of explained variables method This paper adopts the method of replacing explained variables for robustness testing again. We use OP method to calculate the total factor productivity which is denoted as TFP_OP. I is cash paid for the acquisition of fixed assets intangible assets and other longterm assets (million). The formula is as follow. The numbers in parentheses are t-values: ***, **, and * represent significant at 1%,5%, and 10% levels respectively As shown in table 6, the estimated coefficient of the combined comprehensive tax rate (Tax) and total factor productivity of enterprises (Tfp_OP) is -0.152, which is significant at the 1% level. The coefficient of interaction (Tax_MAR) and total factor productivity (Tfp_OP) is 0.073, which is significant at the 1% level. The previous results are consistent, and the reliability of the regression results in this paper is verified again.

Regional Heterogeneity Analysis
In order to accurately measure whether the tax cut policy has differential impact due to the location of enterprises, the sample enterprises are divided into enterprises in the eastern, cen-  In the relationship between the comprehensive tax rate and total factor productivity, the analysis results of corporations in the central regions are consistent with the total sample and are significant at 1% level, while the same relationship is also found in the western regions, which is significant at 5% level. Companies in eastern regions are consistent with the total sample as negatively correlated, but the lack of significance suggests that the effect of tax cut policy is more pronounced for the less developed central and western regions, thus contributing to the high-quality development of enterprises in the central and western regions. This is because of the better natural economic advantages, more favorable taxation environment and higher degree of enterprise development in the eastern regions, so the effect of the tax cut policy could be more obvious for the relatively backward central and western regions. The numbers in parentheses are t-values: ***, **, and * represent significant at 1%,5%, and 10% levels respectively

Property Heterogeneity Analysis
As shown in table 8, the sample is divided into state-owned enterprises and private enterprises based on the nature of property rights.The results show that the high-quality development of state-owned enterprises is more significantly affected by the tax cut policy compared with private enterprises. It is significant at the 5% level. This is because tax cut policy, as one of the important ways for government to promote enterprise development, can directly help enterprises to reduce production costs and increase production profits, thus providing more chances to invest in R&D activities. In this way, companies can promote both qualitative and quantitative development. State-owned enterprises can generally obtain a higher level of monopoly profits due to the support of government policies and monopoly of market operation, while private enterprises have lower profits due to the fierce market competition. Therefore, state-owned enterprises can better utilize the bonus brought by tax cut policy to promote enterprise development.

Conclusion
In conclusion, this paper uses data of A-share listed companies from 2015-2019, empirically analyzes the impact of tax cut policy on the high-quality development of enterprises and the moderation effect of business environment in the relationship between the two. It shows that there is a significant negative relationship between the comprehensive tax rate and the total factor productivity of enterprises. The tax cut policy can effectively improve the total factor productivity of enterprises and thus promote the high-quality development of enterprises. This result is still robust after adopting the shortened time window method and the method of replacing the explained variables. It indicates that tax cut policy can be a powerful tool to promote the high-quality development of enterprises and supply-side structural reform. Meanwhile, the business environment plays a moderating role in the relationship between tax cut policy and high-quality development of enterprises. The business environment weakens the negative impact of comprehensive tax rate on the total factor productivity of firms. When tax rate rises, it leads to a decline in the total factor productivity, and the decline in the total factor productivity of firms can be suppressed in a better business environment. Besides, the significance of the effect of the level of high-quality development by the tax policy differs among enterprises with different regions and property rights nature. The significance of this effect is greater among enterprises in central and western regions, while the significance of this effect is greater among state-owned enterprises. Therefore, it is recommended to insist on tax cut policy as an important hand to promote structural reform on the supply side and high-quality development of enterprises, implement tax cut policy according to local conditions, and increase the publicity of tax cut policy through multiple channels. At the same time, government should continue to optimize the business environment, such as increasing the policy support for enterprises affected by the epidemic, simplifying the cost of business as well as optimizing financing services in the financial market to help enterprises survive and develop.